No, redlining is not "really just not willing to write mortgages for unqualified borrowers." Redlining is marking off an area that you won't provide services in because of the area's racial or ethnic make up.
That's what they pretend.
No one is pretending anything. You were confused about the meaning of the word "redlining" and I explained what it is. I suggested that you look it up in a dictionary if you didn't believe me. Obviously you didn't.
Locally "redlining" was not writing low-down loans for houses that weren't expected to appreciate. They were perfectly willing to write 80/20s, though.
This is approaching incoherent babble. Redlining is refusing to write loans in a particular area because of the area's racial or ethnic make up. I don't know if you meant to say that "redlining" is not writing down a loan on a house that isn't expected to appreciate, that is the word "low” is misplaced, but if this is the case the thought is incoherent or if you meant to say that "redlining" is not writing low down payment loans for houses that aren't expected to appreciate, in which case the word "payment" was left out but once again the thought is incoherent. There are a lot of things that redlining isn't. I suggest that you try to concentrate on what it is, not what it isn't. I have told you what it is twice now.
The law doesn't even rely on establishing a racial or ethnic prejudice. It simply states that a bank that takes deposits from a community should write loans in the community equal to at least one half of the value of those deposits.
Yeah--write enough loans no matter how bad. That's what caused the problem.
Once again, the law against redlining prohibited writing bad loans.
If by causing problems you mean the Financial Crisis of 2008, this had nothing to do with the CRA, the anti-redlining law. The reason that so many bad mortgages were written is because the banks and Wall Street created tranced Mortgage Backed Securities of which the most popular slices of the MBS's where those containing the riskiest loans, the non-conforming loans, because these were the trances with the highest returns. This meant that the agents who originated the loans, who wrote the loans, were provided with financial incentives basically to write bad loans. These agents, many of whom came from Ameriquest and other predatory lenders, didn't suffer any financial loss if the borrower defaulted. This is what economists call a "moral hazard."
Note that this isn't anywhere close to one half of the loans that the bank writes because of the multiplying effect of fractional reserve banking. A 5% reserve requirement means that the bank can write twenty times the amount of loans as it has deposits. In this case the bank would have to write 2.5% of its loans in the community that provided the deposits.
The law prohibits the bank making loans to unqualified borrowers.
No matter how many times people pretend that fractional reserve banking allows a bank to write more loans than they have in deposits doesn't make it so.
What a 5% fractional reserve actually means is that if they get $100 in deposits they can loan out $95. The recipients of those loans will normally spend it on something and the recipient of that money deposits that $95 in the bank--which means another $90.25 in loans. By the time the cycle runs to completion you have $2000 in deposits and $1900 in loans.
Yes, you are absolutely right, the original 100 dollars deposit has turned into a total of 2000 dollars. 2000 divided by 100 equals 20 times the amount of money that we started out with. The banks have created 1900 dollars out of thin air from the original 100 dollars by repeatedly loaning it out, diminished by the reserve amount for each loan. You have it actually right, you can pretend to be one of those people who believe this.
In each iteration the amount of money that goes into the banks’ reserves is five percent of the loan amount. When the entire 1900 dollars of loans have been made the total amount of reserves that are being held will equal exactly 100 dollars. The fraction is 100 ÷ 2000 or 5%.
Yes, I see. It was imprecise of me to conflate deposits and reserves. Yes, you are correct, the loan amount in each step has to be deposited in a bank and loaned out again for the entire amount of bank money to be created. If you add up all of the loan amounts deposited in the banks it will be 1900 dollars. The banks have created 1900 dollars in bank money from only 100 dollars in base money but because the loan amounts have to be deposited in the banks the banks haven't created more money they have in deposits.
So my point isn't valid. I should be more careful in the future.
